Missouri Federal Court First to Enjoin Implementation of Medicaid DSH Third Party Payer Final Rule

On Friday, February 9th, a federal district court in Missouri became the first to enjoin implementation of the Centers for Medicare & Medicaid Services’ (CMS’) Final Rule requiring the inclusion of Medicare and commercial payments in the calculation of the Medicaid disproportionate share hospital (DSH) limit (Missouri Hospital Association v. Hargan, Case No. 2:17-CV-04052-BCW). In the case, argued by Eyman Associates’ Barbara Eyman, the Missouri Hospital Association challenged the permissibility of the policy as implemented through a set of Frequently Asked Questions (FAQs), which have been invalidated by several other federal courts, as well as through the Final Rule later issued by CMS through notice and comment. The Court found that not only the FAQs but also the Final Rule were inconsistent with the plain language of the Medicaid statute (in addition to finding that the use of FAQs to issue the policy violated procedural requirements under federal law). This means that CMS is barred from continuing to implement the Final Rule and recouping DSH payments on that basis in Missouri. The MHA decision should also serve as precedent for invalidating the rule in ongoing challenges.

In addition to the Missouri decision, five other federal courts have sided with hospitals based on the impermissibility of the FAQs, permanently preventing CMS from applying its policy in Minnesota, New Hampshire, and Tennessee, and temporarily preventing CMS from applying its policy in Texas, Virginia, and Washington as those cases proceed to a full trial. A similar case challenging the Final Rule as well as the FAQs is pending in the D.C. Circuit.